Profitable Growth by Acquisition
Richard T. Bliss
The subject of this chapter is growth by acquisition, and few other business transactions receive more scrutiny in both the popular and the academic presses. There are several reasons for this. One is the sweeping nature of the deals, which typically result in major upheaval and job losses up to the highest levels of the organization. A second is the sheer magnitude of the deals—the merger in 2000 between Time-Warner and America Online (AOL), worth more than $150 billion, exceeds the 2007 gross domestic products (GDPs) of 80% of the world’s nations! Third, the products involved are known to billions of people around the world. Budweiser, M&M’s, The Wall Street Journal, and Porsche are just a few of the world-renowned brand names involved in recent mergers and acquisitions (M&A) transactions. Finally, the personalities and plots in M&A deals are worthy of any novelist or Hollywood scriptwriter. The 1988 leveraged buyout of RJR Nabisco—at that time the largest deal ever at $25 billion—was the subject of a New York Times best seller and a popular film, both called Barbarians at the Gate. In the ensuing two decades, there have been numerous other best-selling books and movies based on real and fictional M&A deals.
In spite of this publicity and the huge amounts of money involved, it is important to remember that M&A transactions are similar to any other corporate investment; that is, they involve uncertainty and the fundamental ...